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SINGAPORE (Reuters) - Asian refiners look set to be big winners as Brazil boosts sweet crude production from its bountiful deepwater pre-salt region in the second half of the decade.
Exports from Brazil, home to four of the world's largest oil finds in the past 10 years, will have to look for buyers in fast-growing Asia as the United States will use more of its own shale oil output toward the end of the decade, pushing West African imports back to Europe.
Besides changing trade flows, higher sweet crude production from non-OPEC countries combined with tighter supply of cheaper sour grades from the Middle East could narrow the price gap between the two.
"The market looks like it will get more competitive than it is now as there will be more significant non-OPEC suppliers than we see today," PFC Energy Senior Director Paul Tossetti said, pointing to more oil sands production from Canada, shale oil from the United States and Russian ESPO crude.
"This will be very welcome for Asian consuming countries."
Brazil, the second largest source of non-OPEC crude oil growth after Canada, will boost its production of liquids --including crude, biofuels and non-gas liquids -- to 3.0 million barrels per day (bpd) in 2016 from 2.2 million bpd in 2011, according to the International Energy Agency.
More than 75 percent of the growth will come from crude with the pre-salt region adding about 800,000-900,000 bpd, IEA analyst Michael Cohen said, more than offsetting a decline in output from existing fields.
The deepwater region, an area the size of New York state, is believed to hold more than 50 billion barrels of oil.
Petrobras (PETR4.SA) expects to triple crude exports to between 1.5 million and 1.6 million barrels per day (bpd) by 2020, CEO Jose Sergio Gabrielli said in Singapore on Tuesday.
The Brazilian state oil firm expects to boost crude output to 3.9 million bpd by 2015 and 4.9 million bpd by 2020 from around 2 million bpd now, which would make Brazil one of the world's three largest oil producers.
Four new refineries will add 1.3 million bpd of oil products output, the CEO said, lifting refinery capacity to around 3.2 million bpd by 2020.
"In the new scenario we're going to be price-makers," Petrobras General Manager for Sales and Marketing Jose Pereira added.
Brazil's medium-heavy crude from pre-salt fields will easily fit into the diet of complex refineries in China and India, which account for the bulk of demand in Asia, analysts said.
The 12th largest crude supplier to China has come a long way since it first exported a Marlim crude cargo to the emerging giant in 2000.
As part of a loan-for-oil deal, it is committed to supplying 200,000 bpd of crude to China for 10 years, although exports are at 136,436 bpd in the first nine months this year as each cargo is sold through price negotiation, Petrobras' Pereira said.
"We are going to look to the Asian markets for sure, we cannot ignore China, which is one of our biggest partners," said Pereira. "If we had more oil available today, the Chinese would certainly be buying it."
Other markets for the new Brazilian crude would include the United States, which is already buying 40 percent of Brazil's exports, and India, he said. Indian private refiners Reliance and Essar bought 43,400 bpd of Brazilian crude in 2010.
Petrobras' CEO Gabrielli also said he expected exports to China and the United States to double to between 400,000 to 450,000 bpd to each nation by 2020.
To gear up for more exports to Asia, Petrobras has beefed up its operations with a three-man crude trading team in Singapore and leased oil tanks in Okinawa, Japan, where it operates a 100,000-bpd refinery.
Petrobras has already reached out to refiners all over the world, sending samples to prepare them for Brazilian crude, Pereira said, adding that new trading offices would be created.
"If Brazilian crude prices plus freight rates are cheaper than those from West Africa and the quality of the crudes are of little difference, why not buy Brazilian oil?" a Chinese trader said.
There are some speed bumps on the way to ramping up Brazilian supply.
Export volume could fluctuate from year to year as the timing of new crude production and the commissioning of new refining capacity will not be synchronized, FACTS Global Energy analyst Roy Jordan said.
Cost pressures and a government mandate that most of the oil production equipment have to be built in Brazil may delay start-up targets, HSBC analyst Anisan Redman said.
A dispute in the Brazilian government over the distribution of oil wealth to non-producing states could also stall new investments in deepwater offshore areas.
The government hopes to resume auctions for deepwater fields by the second half of 2012, but this will depend on the approval of a royalties agreement in Congress.
Despite the pitfalls, the IEA sees Brazilian crude contributing to non-OPEC supply growing by around 1 million bpd during 2010-2016.
In the United States, Eagle Ford formation in southern Texas could produce 500,000 bpd in the next 5-6 years while new technology at the Premian basin in west Texas, home of West Texas Intermediate, could add another 400,000 bpd, according to PFC. Bakken shale in North Dakota will also increase supply.
"You could make the case that all of the sweet crude being imported into the Gulf Coast area will not be needed," PFC's Tossetti said.
"That's 1.3 million bpd of Nigerian and Algerian and other West African, and so that becomes available to Asia and backstops potential declines in the North Sea."
Russia's export to Asia via the ESPO pipeline will increase to 1 million bpd in 2012, or a tenth of the country's total output.
"When you look at the Gulf, the only country that is going to increase production over the next few years is Iraq," Tossetti said.
"If all is else equal, the sweet sour spread could narrow and the sweet become less expensive," he said.
Additional reporting by Francis Kan and Simon Webb in SINGAPORE, Nidhi Verma in NEW DELHI, Judy Hua in BEIJING, Brian Ellsworth and Rodrigo Viga Gaier in BRAZIL; Editing by Michael Urquhart and Miral Fahmy